Back to the complete issue
Monday, 28 January 2019

Fine print on 0.25% healthcare tax — who pays what

EXCLUSIVE- Reading the fine print on 0.25% healthcare tax — who pays what: With the tax season fast approaching, the Finance Ministry has outlined the fine print on the 0.25% healthcare tithe it will collect this year to fund the new national healthcare system under the Universal Healthcare Act.

(And yes, the tithe is 0.25%, not 0.0025% — the Finance Ministry confirmed to Enterprise earlier this month that the taxman will take EGP 2.5 out of every EGP 1,000 in sales revenues. The tax rate that originally ran in the Official Gazette was incorrect, and the ministry has since issued a correction.)

As it stands, all companies are to pay the flat 0.25% tax on revenues this year except under certain circumstances and in some sectors, a senior government source told Enterprise. The Finance Ministry will set up a tax formula for these outliers on a case-by-case basis. The ministry has also preemptively set up special committees to handle issues arising from the tax, the source added.

So, who qualifies for some relief from the tax?

Companies making losses: If your bottom line is red, you won’t have to pay the tax this year.

Commissions, fees and dual revenues: For services and commissions — including financial advisory, consulting or brokerage — the ministry is trying to avoid taxing both the client and the service provider on shared revenues from the same project or activity. So if both the client and the provider earn revenue from an activity, they will split the 0.25% tithe between them, according to a formula that has yet to be revealed by the ministry.

Hotel management companies and hotel owners will also be able to avoid double taxation of the same revenue when a second party is brought on to manage a resort. Joint venture projects will also be subject to a similar arrangement, whereby multiple companies will split the 0.25% tax between them.

What about foreign companies? Foreign companies operating in Egypt (with or without a local subsidiary) will pay the full 0.25% tax on revenues earned in Egypt, the source said. It has yet to be determined whether they will pay the tax in foreign or local currency.

Change could be in the office for next year: The tax rate will be amended next year, the source added. An actuarial study is currently being conducted to determine what the new healthcare tax will be. He said that the ministry is exploring the possibility of taxing net profits instead of revenues. Companies could be categorized by the size of their net profits, with each category paying a different rate.

For the full breakdown of taxes under the Universal Healthcare Act, you can check out our primer here.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.